Connect with us

Career and Money

The Problem with the Economic System – The Oil Price Crisis (Part 1)

Published

almighty_dollar1.jpgIn view of the current skyrocketing oil prices and its effect on world markets, one might wonder what exactly is going on in the world?! Oil prices have reached historical and hysterical records, and yet they are still rising even now as you read through this article. There seems to be no sign of control or breakthrough over these prices any time soon, and until something is done about this, people – average and rich let alone the poor – will remain in agony and pain for a hope of a better future. What exactly is going on in the global markets, and the oil industry in particular, is far from being a mystery.

As business analysts appear on the media almost every single hour preaching their ‘economic wisdom’ to the layman, it has become a common knowledge now, at least for observers, that there is a serious problem in the world economic system. This problem, as controlled by and economy running on capitalism and free markets, has become systematic and cannot be tolerated any more. Ok, this is not a call for socialism or communism, nor it is a leftist conspiracy against globalization or a call for policing the economy, but even if you were the least bit interested person in business and economy, or someone who hates numbers, charts and figures, this current crises should concern you as it affects your life directly and indirectly.

Since the beginning of this current rise in gas prices, how often have you been monitoring gas price signs on the gas station next to your home, business or even school? You probably never even noticed the sign or the gas station ever existed until you became concerned with the issue. Have you noticed that gas prices have changed your daily driving habits? Now at least, you keep looking at the gas gauge more often than you used to do before, and you probably have started to plan your refueling trips more carefully.

Keep supporting MuslimMatters for the sake of Allah

Alhamdulillah, we're at over 850 supporters. Help us get to 900 supporters this month. All it takes is a small gift from a reader like you to keep us going, for just $2 / month.

The Prophet (SAW) has taught us the best of deeds are those that done consistently, even if they are small. Click here to support MuslimMatters with a monthly donation of $2 per month. Set it and collect blessings from Allah (swt) for the khayr you're supporting without thinking about it.

Oil prices today are causing greater threat to global stability because of the pressure placed on the world food market. If you live in the west or any country with a rich economy, you could feel that your dollar value has shrunk dramatically. Remember the good old days, when you used to get out of the Wal-Mart on a shopping spree with a cart full with all these goodies for less than a hundred dollars?! Well, it’s getting harder today to enjoy the same old habits without feeling the pain creeping out of your heart before your pocket. Starbucks is closing 600 of its locations because common people decided to cut down on unnecessarily expenses; after all coffee is coffee anyways. In addition, whether it was Starbucks or Seven Eleven; it will now, even if you had doubts before, taste the same. For people living in countries of poor economies, the dream of immigrating up north or to the west is becoming more of a necessity than fantasy. The harsh conditions of their daily life activities and the struggle to survive in this age of global economical inflation make one wonder if we were on the verge of global uprising, or massive human disaster.

So, what is the problem then? For a Muslim, this crisis is a symptom of a greater and deeper problem that is worth investigating. It is a sign of violation to the divine order; the order of maintaining this creation of Allah by the laws of Allah. When Allah created Adam to serve, and his offspring, as vicegerent on earth, angles predicted -or were inspired with knowledge- that this creation would create on earth mischief and bloodshed, but Allah knows best that this creation would do better.

“Behold, Your Lord said to the angels: “I will create a vicegerent on earth.” They said: “Will You place therein one who will make mischief therein and shed blood? While we do celebrate Your praise and glorify Your holy (name)?” He said: “I know what you know not.” Al-Baqara 2:30.

In order to achieve his role, man was sent down to earth equipped with fundamental instruments; hearing, sight and comprehensive and affectionate heart.

“It is He Who brought you forth from the wombs of your mothers when you knew nothing; and He gave you hearing and sight and afi’dah (intelligence and affection): that ye may give thanks (to Allah).” An-Nahl 16:78.

When the Qur’an speaks about processing thoughts and making intelligent and educated decisions, the processor presented had always been the ‘Fu’aad’ (singular of afi’dah). The Fu’aad in books of Tafsir (commentary of the Qur’an) was mostly referred to as the heart itself or one of the functions of the heart. In Bukhari and Muslim, in hadith an-Nu’man ibn Bashir, the Messenger of Allah salla Allahu alayhi wa sallam mentioned:

“Beware, in the body there is a flesh; if it is sound, the whole body is sound, and if it is corrupt, the whole body is corrupt, and behold, it is the heart.”

In contemporary business studies and self development seminars, people are taught to use both a cool mind and a warm heart when making decisions. If you don’t have feelings for the intellectual decision you are making, then do not do it. Likewise, if you do not rationalize the passionate decisions you make, it might backfire and bring back detrimental results on you. The Messenger of Allah salla Allahu alayhi wa sallam said:

“Consult your heart. Righteousness is that about which the soul feels tranquil and the heart feels tranquil, and sin is what creates restlessness in the soul and moves to and fro in the breast, even though people give you their opinion (in your favour) and continue to do so.” Reported by Imam Ahmad and ad-Darimi from hadith Wabisah ibn Ma’bad.

Many decisions in global market today are made based on intellectual and observational facts and statistics. Compassion is probably not found in the economic agenda, and does not even exist in their manuals. Consequently, few businesses, if any, would think of the human welfare -let alone the environment- while shaping their strategies. If they do, then it is for PR reasons and limited to customer service. After all, capitalism is a brutal economic system where the rich usually get richer and the poor get poorer. There is no denying the fact that capitalism has its economical virtues, but in the long term, it will definitely cause harm and damage to fragile economies of the global world system.

Today in the world of business, Muslim economists are not doing any better either. A recent study assessing the experience of Islamic financial institutions for the past fifteen years, found Islamic banks – many of which are not so Islamic – have failed to present an acceptable alternative of both a halal and effective banking system without falling into the snares of the entangled global economy. It was hard to operate in an economy based on very different mechanism form Islamic legal system. The competition was harsh, and the temptations at stake were enormous. There is a huge demand for an Islamic financial system, at least in the Muslim world, and many Muslims due to their religious adherence to the divine law, Shari’ah, hold their money back once they feel suspicious of any phony financial transaction. Many others however, are satisfied with the Islamic slogan raised by these institutions, leaving the heavenly responsibility of such dealings to the Fiqh council that legitimized this system for them. Conventional banks in the Muslim sphere have acknowledged that fact; realizing the marginal difference between them and many other so called Islamic banks, they started providing legal financial Islamic services to expand their customer base and attract religious people.

Islamic financial system, different from conventional systems, springs out from the higher objectives of Shari’ah known as Maqaasid al-Shari’ah. The consideration of universal values and public welfare are two of the main objectives of Islamic system; this consideration which is found very consistent throughout the entire system, makes the Islamic system peculiar. One of the fundamentals of the higher objectives of Islamic system is the preservation of the five human necessities, two of which are the preservation of wealth and life. In the practical provisions of Shari’ah  known as Fiqh, the law should always be consistent with these values. Economic law as known in the tradition of Islamic law has been present in books of Fiqh since the inception of this discipline.

These books of Fiqh were the foundation of Islamic traditional studies, and many Muslim scholars were considered the experts in the theory of economics for generations. Economic law intertwined with faith was particular to the Islamic system and hence had to follow the general ethics of Islamic tradition.  The Islamic system answers to a divine authority, and therefore the ethics of the system were divinely organized in order to fulfill the obligation of maintaining this wonderful creation of Allah. If people chose to defy this divine system and tamper with its foundation, they will create a great imbalance and this disequilibrium as a result will cause a major disorder until things are put back where they should be. In today’s economic system, the consideration of public welfare was left for governments and governmental agencies, leaving the free market and its natural forces to decide the ethics of engagement into the global economic system. Without divine authority overseeing the system in the global economy, man-made ethics will prevail.

Muslims have always been creative in their economic system, due to the fact that it has a deep and strong structure in religion and religious practices. The code of ethics in the Islamic economic system did not prevent Muslims from becoming economically prosperous for more than twelve hundred years in the history of their civilization. As a matter of fact the prohibition of ‘riba’ or usury which is the base of today’s economic banking and mortgage system, the prohibition of gambling which is the base of today’s insurance industry, and some other rules in Islamic economic system were inspirational to Muslim merchants and business people. It helped create a vibrant, active and self-stimulant system that is heavily dependent on investment and capital share holding. People always owned something tangible, and their money always reflected real value, not imaginary value. There are numerous reports from the Prophet salla Allahu alayhi wa sallam encouraging people to invest; and many Fiqh rulings were enacted based on this principle. Hoarding and holding the wealth of the orphans was not recommended for fear it might be consumed by zakat; investment was highly advised to avoid this from happening. Inheritance system and its sophisticated and precised fractions were the vehicle that always protected the economy from feudalism and broke monopoly in society “in order that it may not (merely) make a circuit between the wealthy among you” al-Hashr 59:7.

In agrarian societies prior to the industrial revolution and until this present day, the land was the most precious commodity. Islamic agricultural system presented revolutionary ideas to the world contrary to those feudalistic systems crushing the middle class in Europe. One of these fundamental rules was very basic but revolutionary, leasing the land for a portion of the produce in which the landlord keeps the ownership of his land and enters a separate transaction with the worker based on the lease agreement. Moreover, in another rule set to maintain agricultural production and satisfy human instinct of capital ownership, anyone who brings a barren land back to life for a certain number of seasons would own it. Overall, the Islamic system follows a sophisticated set of guidelines; these guidelines however do not entail strictness. On the contrary, these guidelines leave a huge margin of flexibility for practical rules of Shari’ah. They only set the ground for what is permissible and what is not. As for actual practical transactions, all considered legal and acceptable, as long as they conform to these general guidelines.

Part Two

What is going wrong in the oil market?

Keep supporting MuslimMatters for the sake of Allah

Alhamdulillah, we're at over 850 supporters. Help us get to 900 supporters this month. All it takes is a small gift from a reader like you to keep us going, for just $2 / month.

The Prophet (SAW) has taught us the best of deeds are those that done consistently, even if they are small. Click here to support MuslimMatters with a monthly donation of $2 per month. Set it and collect blessings from Allah (swt) for the khayr you're supporting without thinking about it.

Sh. Yaser Birjas is originally from Palestine. He received his Bachelors degree from Islamic University of Madinah in 1996 in Fiqh & Usool, graduating as the class valedictorian. After graduating, he went on to work as a youth counselor and relief program aide in war-torn Bosnia. Thereafter, he immigrated to the U.S. and currently resides in Dallas, Texas. He is also an instructor at AlMaghrib Institute, where he teaches popular seminars such as Fiqh of Love, The Code Evolved, and Heavenly Hues.

14 Comments

14 Comments

  1. Hassan

    July 17, 2008 at 12:53 AM

    Jazak-Allah khyran sheikh for this article, insha’Allah would be waiting for part 2.

    You are indeed right that high cost of living and rising oil prices have made many people re-think the economic system. What I have found amazing (yet it is obvious as muslim) that Islam provides perfect balance of capitalism and socialism aspect of economy. Although people focus more on its social welfare part when preaching, but nevertheless Islam respects and protects private ownership and personal property rights as well. As sheikh Yasir said, it is quite sophisticated.

    The bottom line for this economic mess can be summarized (generally) in following points (few that Sheikh mentioned)

    1. Non-tangible money (fake money). Allah has ordained zakat on gold and silver for a reason. Because they are the real currency by human instincts, paper money should be backed by gold standard.

    2. Interest based system. I am amazed why people did not open their eyes in 90s when Argentina’s economy collapsed, and many analyst were agreeing that interest based system is cause of it.

    3. Free market myth. US and many world economies pretend that they have free markets, but yet the market is heavily influenced by politicians and lobbyists. Free market should go both ways. The government and influential people should not be able to control the market, neither the rich corporations should be able to control and influence the government and influential people. The incident of prophet Muhammad PBUH comes to mind when people in Madinah wanted him to set the prices, and he (PBUH) refused saying Allah is the “Musayar”.

    4. Incorrect way of property distribution. The way US tax system works, makes no one happy. The rich are not happy, the middle class is not happy and the poor is not happy. I am not sure if Islam allows any kind of taxes (zakat is not tax), but it provides good source of revenue for Islamic state for the welfare of its people. Anything that comes out of earth (like oil etc) belongs to whole state for the benefit of its people. The zakat is perfect balance of not being too heavy on rich and generating enough revenue for poor.

    Unfortunately, the one candidate in America who was close to these issues was Ron Paul (minus the welfare part, he wants individuals to do that, which was perfect for us muslims, as we can donate more money to our schools and masjids etc, without government taking our money to spend on wars), but he did not win. Anyway, the perfect solution would be islamic sharia system anyways.

  2. Hassan

    July 17, 2008 at 1:03 AM

    I would also encourage people to watch this documentary on youtube, called “Corrupt Banking System”, here are the links:

    (5 parts)

    part 1:
    http://www.youtube.com/watch?v=cy-fD78zyvI

    part 2:
    http://www.youtube.com/watch?v=hfXavRTM4Fg

    part 3:
    http://www.youtube.com/watch?v=_yvRZoM-2r8

    part 4:
    http://www.youtube.com/watch?v=f0p8LepIuVM

    part5:
    http://www.youtube.com/watch?v=PzXZ_Hs1g6U

  3. Mass

    July 17, 2008 at 3:46 AM

    Its not such a bad thing that the American economy is suffering.. least its speeding up the direction towards a multi-polar system instead of the U.S hegemonic status suffocating the world and Muslimeen. Least the U.S is heading towards a new political norm, and less likely to pursue new military fronts attacking and occupying other countries and more likely to pursue diplomacy to perpetuate its interests.

    The west are not the only ones suffering from price surge in basic commodities.. on Aljazeera, the channel had a month of coverage on food price inflation in the Arab world and they covered pretty much most of the Arab countries.. everything is becoming expensive. everywhere not just the west. Largely due to the global economy tied with the economic hegemon the U.S and the dollar. which the U.S keeps printing notes of.. well the world keeps accepting the Dollar its about time that this stops.. and if things keep going this way we might see a shift.

    this economic crises has been predicted long ago by strategic experts like Chalmers Johnson, Author of ” The Sorrows of Empire” which he talks about..

  4. Al Iskandarani

    July 17, 2008 at 8:49 AM

    Salamualaikum,

    I wonder, Sh. Yaser, can you comment on the Islamic limits on pure capitalism (some of which you mentioned above) in light of the hadith where Rasool Allah (SAW) says that Allah (SWT) is Al-Musair (The Pricesetter)? Jazzak Allahu Khair!

  5. Ar-raheeq

    July 17, 2008 at 12:20 PM

    Assalamu Alaikum Sheikh Yasir,

    Alhamdulilah and may Allah reward you with the best for this article. I agree with almost everything you mentioned but i have a doubt that needs to be cleared. It is about your thought on islamic banks not being very islamic….my doubt is how will i be able to judge whether such banks are actually islamic or not, after all almost all such banks run under the supervision of sharia scholars??? (i am not referring to the conventional banks having “islamic windows”)
    …. JazakAllah Khair once again

  6. Ibn Masood

    July 17, 2008 at 2:49 PM

    Oil prices and a failing economy won’t just make driving expensive… our food and drink are going to get VERY expensive… commuting will become difficult, airlines will start reducing flights… the entire infrastructure is going to collapse…

  7. Sharif

    July 17, 2008 at 4:40 PM

    Salam Alaikum Shaikh Yasir,

    I agree that most “Islamic” banks are not actually Islamic. My question is, are there any “Islamic” banks that are actually Islamic at all? Could you give us some examples, perhaps? Jazakallah Khair for the beneficial article.

  8. Amad

    July 17, 2008 at 9:29 PM

    Being that I have been working in the oil industry for over a decade, I am looking forward to seeing the Shaykh’s take on “what’s wrong with oil”. I had planned to write something on it, so this is going to be cool :) I may have to challenge some of the “worldly” premises :)

  9. Hassan

    July 17, 2008 at 10:31 PM

    Amad (Author) said:

    Being that I have been working in the oil industry for over a decade, I am looking forward to seeing the Shaykh’s take on “what’s wrong with oil”. I had planned to write something on it, so this is going to be cool :) I may have to challenge some of the “worldly” premises :)

    You poor oil man.

  10. faisal

    July 18, 2008 at 12:23 AM

    i don’t think one can say the system is messed up because of this crisis. economies of all types have booms and busts and this one is not any different–an excess of greed, a shortage of real value (see the subprime mortgages for proof).

    point two: all monies (gold or otherwise) are inherently worthless because you use them to obtain other things.

    point three: look into the origins of capitalism, and you’ll see adam smith was actually a philosopher trying to design a system that would aid all people and would increase equality more than the mercantilism of the time. he felt the best way to do this would be to maximize efficiency, through specialization and industrialization. and one cannot deny the effect of the capitalist system in aiding the poor in industrialized nations.

    the capitalism we read about nowadays obsessed with free markets and such is not smithian capitalism because it lacks the industrialization/specialization which was vital to the system.

    i think to say the commodities and inflation issue is driven in part by the interest based system would be a correct statement however– central banks everywhere have been cutting interest rates–but it is also driven by increased demand. and the predatory practices of many global financial institutions are without doubt. still, one shouldn’t begin to claim the system is about to ‘collapse’ when the economy is not even in a technical ‘recession’ yet.

  11. ibnabeeomar

    July 18, 2008 at 1:20 AM

  12. Farhan

    July 18, 2008 at 9:52 AM

    I think our excessive government debt will destroy our economy in the long-run. It will destroy the value of the dollar, causing rapid inflation.
    Who knows when this will be, hopefully not soon. Ironic how we say “The All-Mighty Dollar”.

  13. Yusuf Smith

    July 20, 2008 at 7:33 AM

    As-Salaamu ‘alaikum,

    A likely reason for Starbucks closing hundreds of its cafes is that there were too many of the to begin with; in many cases they coincide with a better location being found elsewhere. Kingston is a case in point; their first venue was out on the “racetrack” (the one-way system) which is the very edge of the Kingston shopping area. They later found places in the Bentall’s covered shopping mall and inside the Border’s bookshop, and then a few doors down from their original site but which is in a busy shopping area, so the original place has closed.

    Another reason is that Starbuck’s coffee is expensive and mediocre. In the UK they cost £2.05 a cup, it’s weak tasting (I’m talking about the latte; the other drinks may be better), and the service is slow, with the staff re-steaming the jug of milk with every cup they pour. I only buy their coffee when they are the only place open, or when I badly want to read something I picked up on the bookshelves but don’t want to pay for it.

  14. Pingback: The Financial Meltdown and its Underpinnings of Debt | MuslimMatters.org

Leave a Reply

Your email address will not be published.

MuslimMatters NewsLetter in Your Inbox

Sign up below to get started

Trending